Category: Lloyd’s favorite posts

When I accepted my first job in the social casino (free to play slot machines) space, I did not understand fully (or believe) why anyone would pay to play a casino game (slots, poker, bingo, etc.) if they could not win money. After all, people gambled to win money, or so I thought. It was, however, difficult to argue with the data that showed social casino consistently the most profitable genre in social and mobile gaming. Moreover, I also did not fully understand why people would spend real money for a virtual good (i.e. a virtual tractor) and assumed the two must be related.

Those questions prompted me to do research before starting my position in the social casino, which led to my blog post Why would anyone buy a virtual good? . The post also included information that people gamble for three reasons – economic, symbolic and pleasure-seeking – and only one of them was tied to making money.

Chen, Shoemaker and Zemke segmented slots players into four clusters based on five sets of factors, and by looking at each cluster it provides a good understanding of the people who play and monetize on social slots products. The five factors are ego-driven, learning, relaxation, excitement and financial rewards. Based on how players ranked the various factors, the authors were able to create four distinct clusters that show different types of players. Below, I recap the four clusters, which you can then use to make your products and marketing better fit for your target customers.

The “excitement gambling seekers” cluster

Players who are excitement gambling seekers are playing for the stimulation. Their primary motivation is the strong sensations they experience while playing, the positive memories from winning moments and the thrill of winning or losing. Excitement seekers were the largest cluster of slots players (27.5%) in the research.

The key takeaway about this cluster is they are not playing to win or make money, they are playing for the same reason someone rides a roller coaster, excitement.

The “relaxation gambling seekers” cluster

These customers are playing slots to escape. Their key motivation is to release tension and because the game is fun. They will often credit slots as the best way to relax completely. This cluster is more interested in the experience of playing rather than focusing on winning. This is has more men than women (51.5% to 49.5% respectively). 25.5 percent of slots players make up this cluster.

The key takeaway with this cluster is that they are playing largely for the same reason someone goes to the cinema or reads a book, to relax and escape. As with the excitement cluster, they are not looking for financial rewards.

The “utilitarian gambling seekers” cluster

These are players who play as a means of socialization, communing with friends or as an escape from everyday boredom. It is referred to as utilitarian because the purpose is functional (utilitarian) and players gamble to satisfy experiential motives. About 20 percent of the players sampled fell into this cluster (which was also the oldest group).

These players place little value in some of the features many social casinos focus on. They do not care about themes or progressive jackpots. One of their most important considerations is the minimum bet of the slot machines.

Earlier this month, I wrote about Robert Thaler’s work on behavioural economics, including his theory regarding mental accounting. Mental accounting is a psychological theory of how limited cognition affects spending, saving, and other household behavior. In particular, people group their expenditures into different categories (housing, food, clothes, etc.), with each category corresponding to a separate mental account. Each account has its own budget and its own separate reference point, which results in restricted movement between the accounts. When integrated with the research of Chen, Shoemaker and Zemke, mental accounting explains how people have a set sum to spend on slots and will chose the purchase that allows them to optimize use of those funds.

The “multipurpose gambling seekers” cluster

The multi-purpose cluster, as its name suggests, play for several reasons. Players in this cluster play because slots are fun but also because there is a good chance to win and it is in their budget. These are players who think (fantasize) about what they will do with their winnings and want to make a lot of money. These players normally do not care about themes around games. About 27 percent of slots players are in the multipurpose cluster.

The takeaway with this cluster is that it combines a desire to win money with the entertainment value of playing. These are the players who might seek a real money alternative when it is available but play free to play (social) slots if they are in a location where they do not have access to real money.

How men and women differ

One other interesting insight in this research is the difference between male and female slots players. Many female players were excitement gambling seekers or utilitarian gambling seekers, while male players were relaxation or multipurpose gambling seekers. Thus, if you target different genders, your messaging and promotions should apply to what they are more likely to find important.

Remember these are real money players

The most important takeaway from the above cluster analysis is that it was done with real money land based slots players, not social players. This is critical because even people gambling in the traditional sense are largely not gambling to make money but for excitement, relaxation, etc. Once their motivations are understood, it is obvious why people would spend to play slot machines where the real money opportunity does not exist. As the authors write, “American slot players were mainly motivated by hedonic and experiential motives…gambling is a type of recreation or entertainment in America.” Hence, why social casino is such a strong and growing genre.

Key takeaways

Research shows that there are four types of slots players, with each group having different motivations.

Three of the four groups are driven by non-economic reasons (excitement, relaxation, fun, etc.) to play slots, thus they get the same satisfaction from social casino products that they get from playing real money slots.

I recently finished Michael Lewis’ most recent book, The Undoing Project: A Friendship that Changed the World and it motivated me to revisit Daniel Kahneman’s Thinking, Fast and Slow. Lewis’ book describes the relationship between Daniel Kahneman and Amos Tversky, two psychologists whose research gave birth to behavioral economics, modern consumer behavior theory and the practical understanding of people’s decision making. He explains the challenges they faced and the breakthroughs that now seem obvious.

As I mentioned, The Undoing Project reminded me how important Kahneman’s book was, probably the most important book I have ever read. It has helped me professionally, both understand consumer behavior and make better business decisions. It has helped me in my personal life, again better decision making in everything from holiday choices to career moves. It helps even to explain the election of Donald Trump or how the situation in North Korea has developed.

In the Undoing Project, two things drove home the importance of Kahneman’s work. First, despite being a psychologist, Kahneman won the Nobel Prize for Economics in 2002. It is difficult enough to win a Nobel Prize (I’m still waiting for the call), but to do it in a field that is not your practice is amazing. The second item that proved the value of Kahneman’s (and his colleague Amos Tversky) work was the Linda Problem. I will discuss this scenario later in this post, but the Linda Problem proved how people do not make rational decisions, myself included. It convinced the mainstream that people, including doctors and intellectuals, consistently made irrational decisions.

Despite the value I derived from Thinking, Fast and Slow, I never felt I learned all I could from it. I found it very difficult to read, the exact opposite of a Michel Lewis book, and did not digest all the information Kahneman provided. Even when I recommended the book to friends, I often caveat the recommendation with a warning it will be hard to get through.

Given the importance of Kahneman’s work and the challenge I (and probably others) have had in fully digesting Thinking, Fast and Slow, I will be writing a series of blog posts, each one summarizing one chapter of Kahneman’s book. I hope you find it as useful as I know I will.

The Linda Problem

As discussed above, the Linda Problem is the research by Kahneman and Tversky that largely proved people thought irrationally, or at least did not understand logic. While I normally like to paraphrase my learnings or put them into examples relevant for my audience, in this case it is best to show the relevant description from The Undoing Project, as the Linda Project was a scientific study that I do not want to misrepresent:

Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

Linda was designed to be the stereotype of a feminist. Danny and Amos asked: To what degree does Linda resemble the typical member of each of the following classes?

Linda is a teacher in elementary school.

Linda works in a bookstore and takes Yoga classes.

Linda is active in the feminist movement.

Linda is a psychiatric social worker.

Linda is a member of the League of Women voters.

Linda is a bank teller.

Linda is an insurance salesperson.

Linda is a bank teller and is active in the feminist movement.

Danny [Kahneman] passed out the Linda vignette to students at the University of British Columbia. In this first experiment, two different groups of students were given four of the eight descriptions and asked to judge the odds that they were true. One of the groups had “Linda is a bank teller” on its list; the other got “Linda is a bank teller and is active in the feminist movement.” Those were the only two descriptions that mattered, though of course the students didn’t know that. The group given “Linda is a bank teller and is active in the feminist movement” judged it more likely than the group assigned “Linda is a bank teller.” That result was all that Danny and Amos [Tversky] needed to make their big point: The rules of thumb people used to evaluate probability led to misjudgments. “Linda is a bank teller and is active in the feminist movement” could never be more probable than “Linda is a bank teller.” “Linda is a bank teller and active in the feminist movement” was just a special case of “Linda is a bank teller.” “Linda is a bank teller” included “Linda is a bank teller and activist in the feminist movement” along with “Linda is a bank teller and likes to walk naked through Serbian forests” and all other bank-telling Lindas.

One description was entirely contained by the other. People were blind to logic. They put the Linda problem in different ways, to make sure that the students who served as their lab rats weren’t misreading its first line as saying “Linda is a bank teller NOT active in the feminist movement.” They put it to graduate students with training in logic and statistics. They put it to doctors, in a complicated medical story, in which lay embedded the opportunity to make a fatal error of logic. In overwhelming numbers doctors made the same mistake as undergraduates.

The fact that almost everyone made the same logic mistakes shows how powerful this understanding is. It proves that our judgment, and thus decision making, is often not logical but does contain flaws. This understanding helps explain many things in life and business that sometimes do not seem to makes sense.

The implications

Once you understand how our judgment is biased, it can help you make better decisions. It can also provide insights into how your customers view different options and why people behave as they do. In future posts, I will explore all of Kahneman and Tversky’s major findings and how they apply.

Key Takeaways

In the Undoing Project, Michael Lewis writes about the relationship and research of Daniel Kahneman and Amos Tversky, two psychologists who changed the way we understand decision making

The Linda Problem proved to the non-believers that people made illogical judgments. When given a story about a fictional person and then potential careers for that person, virtually everyone (from students to very successful professionals) chose a persona that was a subset of a broader persona, thus impossible that the former was more likely.

By understanding how people make judgments and decisions, we can improve our own decision making process and better understand our friends, family and customers.

Neuromarketing is a very exciting new field that is driving business growth, think Big Data ten years ago. The course, taught by Neuromarketing pioneer Thomas Zoëga Ramsøy of the Copenhagen Business School, delves into neuroscience and how both small and large companies can use it. It leverages increasing understanding in how the brain works with the emergence of behavioral economics and data-driven marketing.

While marketing in the past largely relied on intuition, surveys and focus groups, neuromarketing starts by understanding how the brain functions and what parts of the brain drive different behavior. By understanding what parts of the brain drive emotion, motivation, etc., you can then create products and marketing campaign most likely to get customers to purchase.

While I am not the person to summarize how the brain works, below are some of the key learnings from Professor Ramsøy’s course and implications for the game industry.

Cognitive Load

The concept of cognitive load is critical to the success of many products, from games like slots to apps like Uber. Given the the human brain consumers 20 percent of the body’s energy but only is 2 percent of the body’s mass, it is important to understand that people will subconsciously work to reduce the amount of energy the brain is using.

Cognitive load is how much info people are processing at any one time. Cognitive load is tied to working memory, the more information in that short-term memory the higher the cognitive load. As cognitive load increases, consumers are less likely to make a purchasing decision.

The concept of cognitive load also confirms why UIUX is often better when simpler. A simple user experience minimizes cognitive load, thus not creating too much strain.

Implications

It is important to manage proactively consumers’ cognitive load. Giving consumers many choices increases their cognitive load, thus making them less likely to purchase. Thus, it is critical that rather than giving your customer 25 different packages they can buy, keep the purchasing decision simple.

While simpler is better is often considered the goal of UIUX, it often is abandoned so new features can be added. The reality is that simpler is more important than features and you need to build your products not as a tradeoff between the two but as something that focuses on minimizing customers cognitive load.

Uber is a great example of the success of this strategy. From a very simple interface to only a few options to not even letting customers think about tipping to not even having to worry about paying, using Uber requires very little thought. Yet this incredibly simple app has made Uber worth over $60 billion.

Not only is cognitive load important when creating the overall product but also the underlying mechanic in the product. People often question the enduring popularity of slot machines. There are, however, virtually no game mechanics that have lower cognitive load than slots. The slot mechanic provides entertainment without using too much energy. When creating other mechanics, it is critical to understand how much mental energy they will consume.

Search and attention

One of the most powerful applications of neuromarketing is related to search and what consumers select following the search process. Critically, there are two types of search, and each is driven by different parts of the brain.

First there is bottom-up search, which is largely unconscious. This is where a person comes across something and it grabs your attention. Certain receptors in eyes more receptive to things like contrast and density. The best example is when you are in a grocery store and you notice something you were not planning on buying. This type of search is generally driven by colors, shape and density. Consumers are likely to buy some that grabs their attention. As much of consumer behavior is unconscious,

The other type of search is top-down, which is primarily conscious. This is when somebody is searching for something in particular. You may again be in a grocery store and looking for eggs. You will focus your mental energy on thinking hard and finding what you need.

Implications

You need to design your UIUX based on what type of search your customers will be conducting. If they are conducting a top-down search, then you do not have to prioritize making it that visible. They will find it regardless. Conversely, if you want to engage your easier (get them to try a new feature or new content or have them think about monetizing), then you want to stand out during a bottom-up search.

In this case, there are some great new tools for UIUX to optimize visual search results. Professor Ramsøy, who taught the course, has a commercial product called Neurovision. Neurovision allows you to put in an image of your game (in our case) and see what players will notice without the need of a fancy heat test, thus what will jump out in a bottom-up search (see example below):

It is also often used by retailers (including Walmart and Home Depot) to understand what consumers will see while walking through their store, it can even analyze what people will notice during videos. Neurovision is one of a host of new products based on Neuroscience that help you scientifically improve your products rather than relying on anecdotal experience with a limited number of users.

Branding

The value of brands is often debated but neuromarketing shows the value of a brand. Brands impact how we perceive and enjoy a product and stimulate additional parts of the brain that the product would not normally impact.

As discussed with cognitive load, the brain uses a lot of energy and consumers are constantly looking at ways to minimize this energy usage. Brands help consumers save energy because when they see a brand they are familiar with, the branding fills in a lot of information that they do not have to then ascertain (quality, style, etc.). Thus, when deciding between a branded product and a brand they are not familiar with (or no brand) the branded product has an advantage as choosing it requires less energy.

While this analysis may not seem like neuromarketing, neuromarketing confirms it. When people who have been exposed to branding for a certain paint are then in the paint section of a hardware store, eye-tracking confirms that they spend more attention on products from brands they are aware of. This phenomenon then leads to a higher likelihood of purchase.

Branding also helps with search, particularly bottom up search. While a consumer focused on finding a specific product or specific feature set may not respond to branding, as they are doing a top-down search, someone who is browsing for a new product (say a new casino app), a familiar brand would make it more likely to gain a customer’s attention.

Finally, branding stimulates parts of the brain that then impact how consumers feel about a product. A strong brand will create positive emotions around a product even before the consumer evaluates the product.

Implications

Branding is not dead or useless in a performance marketing world. Strong brand can translate into a higher impact from your performance marketing, customers are more likely to click on your ads. They are also more likely to pick your product when searching organically for one.

Using Neuroscience

Neuroscience is a strong tool to help improve your product and marketing. By understanding how the brain processes information, you can tailor your product and marketing to optimize your chances for success.

Key takeaways

Neuromarketing, based on neuroscience, uses understanding of the brain to drive product and marketing decisions, just as big data creates much higher returns.

You can increase sales and satisfaction by minimizing cognitive load, how much your customer’s brain has to process navigating your app or store

Your UIUX should account for whether your customer is conducint a top-down search (looking for something in particular) or bottom-up search where you want them to find something.

A colleague of mine recently used in a presentation a chart from a Harvard Business Review article and it was so helpful in defining a new product I wanted to share the concepts with everyone. In The Elements of Value by Eric Almquist, John Senior and Nicolas Block of Bain’s Strategy Practice, the authors discuss that while consumers evaluate a product by its perceived value versus cost, most marketers and executives focus on the price side of the equation. They attribute this focus largely to it being easier to manage price, as there are limited variables involved and it is easy to test.

It is more challenging to measure and optimize what customers truly value, whether functional (giving someone more capabilities) or emotional, because it is often a combination of multiple components. While value is always intrinsic to the customer (different people have a different value for the same attributes), the authors have identified universal building blocks of value to improve performance in current markets or enter new markets. Their analysis shows that the right combinations of these attributes leads to higher customer loyalty, greater willingness to try a brand and sustained revenue growth.

In the article, they have identified 30 elements of value (see below), fundamental attributes in their most essential and discrete forms. You can categorize these components in four buckets:

Functional

Emotional

Life-changing

Social impact

From Harvard Business Review, Sept 2016

Some are inwardly focused, like motivation, while others help people deal with other or operate in the world, Not surprisingly, the Value Pyramid is related to Maslow’s Hierarchy of Needs. For those not familiar with Maslow’s work, Maslow’s hierarchy of needs is often portrayed in the shape of a pyramid with the largest, most fundamental levels of needs at the bottom and the need for self-actualization and self-transcendence at the top. The most fundamental and basic four layers of the pyramid contain what Maslow called “deficiency needs” or “d-needs”: esteem, friendship and love, security, and physical needs. If these “deficiency needs” are not met – with the exception of the most fundamental (physiological) need – there may not be a physical indication, but the individual will feel anxious and tense. Maslow’s theory suggests that the most basic level of needs must be met before the individual will strongly desire (or focus motivation upon) the secondary or higher level needs.

According the Almquist, Senior and Bloch, “the elements of value approach extends his insights by focusing on people as consumers—describing their behavior as it relates to products and services….The elements of value pyramid is a heuristic model—practical rather than theoretically perfect—in which the most powerful forms of value live at the top. To be able to deliver on those higher-order elements, a company must provide at least some of the functional elements required by a particular product category.”

Depending on your industry and product, the elements of value will vary. Some industries or geographies will focus more on basic elements, those near the bottom of the pyramid, while others will be focused higher.

Product lifecycle is critical

One area the authors did not explore that I think is critical is product lifecycle. Also, although not a feature of the article, an industry’s stage of development strongly impacts which elements will drive value for a consumer. In an emerging industry, consumers will be much more driven by the functional features. As an industry matures, you no longer will be able to compete on the functional elements but instead will need to move higher up the pyramid. Everyone in the industry will be providing the functional features, so you will have to deliver emotional value. Even there, your competitors will catch up and you will then have to deliver life changing or social impact attributes.

The social slots business is a great example of how the value pyramid has driven success. Five + years ago, companies experienced great success just by providing an online version of slot machines that people formerly only played in casinos. As long as you had a game that worked, priced it correctly (free to play) and made it simple to use, you had a ticket to print money. As the market became more mature, emotional attributes became the factor that generated success. Companies late to the market leap-frogged the Functional leaders by making the products nostalgic (classic slots by DGN or Rocket Games) or better design and more attractive (Hit It Rich by Zynga). As the market gets even more mature and competitive the companies that are experiencing success are those that are introducing life changing elements, primarily affiliation and belonging (such as Huuuge Games).

Using the elements to grow

An area where the elements can help you succeed is by improving on the elements that form your core value, so you can differentiate from the competition and better meet your customers’ needs. The elements can also help you grow your product’s value without overhauling your game or product.

Some companies use the elements to identify where customers see strengths and weaknesses. First, they look at which elements are important in their industry and how they compare with competitors. Then if there are any significant gaps, the priority is eliminating those gaps. Once the gaps are closed, you can then see what elements could create a new gap above your competitors.

Implementation

To leverage the elements model effectively, you should integrate it into several key areas of your business:

New product development. The elements framework should provide ideas for new products and enhancements to existing products.

Pricing. If you are looking to increase your prices, you can soften the blow of the increase by concurrently increasing the value your customer receives from your product. Amazon Prime is a great example, as the service started at $79.99 (I think) with frequent discounts and is now significantly higher but the free shipping is only a side thought, as you get everything from streaming services to special credit cards.

Customer segmentation. Rather than only segmenting customers by demographic or behavioral group, you can use the elements to segment them by where they are deriving value. You can then focus on delivering more of the elements that these segments want or highlighting the elements that may exist but they are not aware of.

While adding value to increase competitive is not the most unique or newest idea, Almquist et. al., have created a framework to focus on creating the most value for your customers and knowing where to focus to increase that value. If you continue to deliver more value than your competitors, you will succeed.

Key takeaways

There are 30 core elements that drive the value a consumer derives from a product and the more they are willing to spend on the product

The values are hierarchical, similar to Maslow’s hierarchy of needs, and once a consumer gets the base value they will be more engaged by life changing or social impact elements.

The value you need to deliver is based on the life stage of the industry. Young industries are focused on functional value while you need to deliver higher level value to compete in a mature industry.

Different businesses

As I wrote then, the biggest challenge traditional game companies face when moving to a free-to-play model (at the time it was more Facebook than mobile) is that they are different businesses. Old school game companies, be it Nintendo or EA to Take2, are skilled at creating a great product that someone buys, enjoys and finishes. Free-to-play companies are creating a service (hence the now relatively old term software as a service), something that customers use over time and becomes part of their life (like Netflix or Amazon Prime).

Building and running a service requires a different skill set than building a great game. The former needs

Analysts to look at customer behavior and suggest changes to continually improve the product

Product managers to create new features and elements that keep existing players engaged and ensure strong elder gameplay for the most committed players

User acquisition specialists who not only can bring in new players but can reactivate the most valuable players

CRM experts who can communicate with existing players both inside and outside of the product through multiple channels to increase their engagement and loyalty.

Conversely, traditional game companies succeed with a very different skill set

Great game designers who can create a fantastic experience, though usually of a limited nature

Marketing gurus who can get people to purchase a product

Distribution experts who can ensure the product is placed prominently in front of potential customers.

I have no privileged information in how Nintendo structured its Super Mario Run team but based on the product and how they are managing it, I would bet the focused more on the skills needed by traditional game companies than those creating a free-to-play game service experience. The game clearly has great designers and their promotion by Apple shows they still know how to manage channels.

They do not understand free-to-play LTV

What they are lacking is an understanding of free-to-play economics, primarily how to optimize player lifetime value. I have written way too many times about customer lifetime value (even wrote a book on it) but it is still a concept that traditional game companies like Nintendo fail to grasp. In summary, lifetime value is the monetary value to your company of a new player and it is a function of monetization (how much they spend), retention (how long they remain a customer) and virality (how many other customers they bring in).

In the traditional game space, this equation is quite easy. For Nintendo, LTV is largely how much a payer pays for a DS and Wii game. It does increase by downloadable content (DLC), whether they buy additional Nintendo products and if they encourage friends to buy but it is largely driven by that retail purchase of a game.

This experience is evident in how Nintendo approached Super Mario Run. The product is built so that the free element is a teaser to get a $10 purchase. It is not built to create a long-term relationship between players and the game, where they return (and often spend) daily for months or years (no exaggeration, take a look at Mobile Strike or Clash of Clans or most of the games on the top grossing charts). They are still focused on the discrete purchase, selling the razor and not the blades.

This approached doomed Super Mario Run (and by the doomed, I meant compared to expectations and potential, as it will still generate millions), even if they were seeing more traction getting the initial $10 purchase. In the world of free-to-play, $10 is largely an irrelevant transaction. Supercell was acquired by Tencent for $8.6 billion because players are spending hundreds or thousands of dollars in the game. By focusing on the first ten dollars, Nintendo missed where the bulk of free to play revenue comes from and largely capped what most players would have to spend. Thus, a player who Nintendo could have built a relationship with that would generate $20,000 is now spending $10 and moving back to a Supercell or King or Zynga game.

Core game companies will continue to flail in the free-to-play business

I said it almost five years ago and it has largely held true, traditional game companies won’t succeed in free to play. Since I wrote that article a handful of game companies have seen some free-to-play success (most notable Hearthstone) or acquired respectable free-to-play businesses but most have either failed or gone bankrupt. We still have not seen EA turn their core games (FIFA, Madden, Battlefield) into free-to-play franchises. There is nothing from Microsoft or Sony on any mobile chart. Take2, not a player in the mobile space. You get the point. It’s no longer a question of when the core game companies will successfully move into free to play (and mobile) but when they will just give up (and investors will stop expecting it) and focus on what they understand.

Key takeaways

The failure of Super Mario Run by Nintendo was very predictable, as traditional game companies face many structural issues in creating free to play mobile apps.

The biggest hurdle is their team structure, as they are built to create a product and not run a successful service.

Core game companies also do not truly understand free to play economics, that customer lifetime value is driven by long-term retention and monetization and not a discrete purchase.

Key Takeaways

Motivation is central to all elements of your life, from driving yourself to come to the office every day to getting your colleagues and employees to out in an exuberant help grow your business unit or company.

One key to motivating people is ensuring they see meaning in their work. You need to ensure and show them that their efforts help the company, customers and most importantly their team and colleagues.

You should not rely on money to motivate people as it often has the opposite result. If they do not see meaning in their work, bonuses could even negatively impact motivation.

The key motivational points to leadership

My favorite author, favorite economist, favorite academic and all around great guy, Dan Ariely, recently published a new book, Payoff: The Hidden Logic that Shapes our Motivation, and it has some great insights that will help you as a leader (and also help build products, but that is for another blog post).

Motivation drives everything

The book is clearly about motivation and it highlights how central motivation is from the time you are very young. We need to motivate ourselves to go to work everyday, we need to motivate our employees to come to work every day, we need to motivate our suppliers to works with us, we need to motivate (in some cases) regulators to allow us to work, we need to motivate customers to use our product or service, etc. On the home front, we need to motivate our kids to do their homework and clean their room, we need to motivate our partner to make dinner or plan a vacation, we need to motivate our neighbors to trim their hedges, etc. The key is that almost everything we do requires motivation, either ours or others.

Motivation is about meaning

It is particularly important to motivate yourself or others to do things they do not really want to do. It is easy to convince someone to come to a meal in a Michelin star restaurant but why visit a friend in the hospital. Ariely uses an example of how he visited a boy in a hospital with severe burns (something Ariely went through early in his life), mentally very difficult for him. Ariely points out that “it shows how deeply we are driven to tap into a sense of meaning, even when doing so is challenging and painful. It also shows that there is a big difference between happiness and meaning….’Meaning’ is a slippery concept, but its essential quality has to do with having a sense of purpose, value, and impact— of being involved in something bigger than the self. “

Understanding how to create this meaning, both for yourself and others, drives your ability to motivate and thus lead. Related, understanding meaning helps you remove the factors that demotivate.

Work needs purpose

The key to motivating yourself and your team (be it your direct reports or your entire company) is providing a sense of purpose. People will work, and work hard, if they feel their efforts make a difference. That could mean building something for themselves, building and helping the company get more successful or building something consumers will use. Conversely, one of the easiest ways to demotivate people (and have them leave your team) is to have them believe their efforts are worthless.

There are many ways to strengthen how people feel they are impacting the company and consumers. Rather than presenting them with a plan for performing their job, help them create a plan and then implement it. They will then see that plan as something they have built and be motivated to have the plan succeed.

If they are providing a service, let them speak with the consumers using the service. Help them understand how their efforts are improving the customers’ experience. If it is a product, put their name or initials on the product. Then their product will be what the customer is using.

If they are involved in a project that is then cancelled, show them how their efforts still benefitted the company. Explain what parts of the project will be used in future projects. Discuss how the project will be a building block in the company’s future and not a waste of time.

As mentioned earlier, if people feel they wasted their time they are likely to be demotivated and possibly leave the company. Ariely uses an example of speaking to a group of engineers who just had a project cancelled. They had spent over a year on the project and it was killed without much explanation. A few months after Ariely’s meeting with the engineers, most of the engineers had left the company.

This anecdotal experience confirmed some of Ariely’s research. He had research participants build Bionicles (Lego robots). While paying all of them to create the robots, for one group they would destroy, in front of the participants, the robots right after they were built. He found that regardless of pay, people would build less robots (even if they had previously loved building robots) if they were destroyed right after construction. Ariely wrote, “those who weren’t terribly excited about Bionicles created about seven of them— the same number as those who loved building them. In general, we should expect that those who love Bionicles would build more of them, but by dismantling their creations right before their eyes, we crushed any joy that the Bionicle-loving participants could get out of this otherwise fun activity. But because he keeps pushing the same rock up the same hill over and over, his work is completely meaningless.”

The key to these findings are that when people are acknowledged for their work, they will work harder for less pay, and when we they not acknowledged, they lose much of their motivation. This suggests that if you really want to demotivate people, ‘shredding’ their work is the way to go, but that you can get almost all the way there simply by ignoring their efforts. Acknowledgment is a kind of human magic— a small human connection, a gift from one person to another that translates into a much larger, more meaningful outcome. On the positive side, these results also show that we can increase motivation simply by acknowledging the efforts of those working with us. “

Don’t make your team feel they are replaceable

Just as destroying people’s work demotivates them, so does making them feel replaceable. Ariely uses the example of identical cubicles that remind people they are low in the corporate hierarchy. Effectively, the company (you?) are telling them they do not justify an investment from the company as they probably will not be there for a long time, that they are replaceable. Not only is this a problem with the traditional cubicle system but also in the open office, when some people are given a desk while others are given offices.

It is not just office layout that creates the perception from employees they are replaceable. As Ariely writes, “I think it’s partially because of the persistence of an industrial-era view of labor that is largely accepted as truth. This view holds that the labor market is a place where individuals exchange work for wages (regardless of how meaningless the labor is) and that people typically don’t really care what happens to their work as long as they are fairly compensated for it.”

Extending this concept out, if people are paid by how many widgets they create, they can then be replaced by someone else who will create widgets for the same or lower wage. Thus, even your compensation structure needs to help create and not destroy meaning and motivation.

Don’t make it about money

While compensation can help motivate, its importance is often overestimated and as discussed above can also demotivate. Ariely ran a workplace experiment at Intel where there were four groups, a control group, one that received a cash bonus; one group received a voucher for pizza and the other group received praise from their manager. All three of the groups performed better than the control group day one, but surprisingly the pizza voucher and praise had the biggest impact (6.7% and 6.6% increase over control, respectively), while the cash prize generated a more moderate increase (4.9%).

The big surprise came on day two, where those in the money condition performed 13.2 percent worse than those in the control condition. As Ariely wrote, “it was as if they were saying to themselves, ‘Yesterday they paid me a bit extra, so I worked harder. But today they aren’t offering me anything special, so I don’t care.”

Day three, the financial reward and control groups started to converge, as the money reward saw a drop in their performance of only 6.2 percent. By the fourth day, productivity had drifted back toward the baseline, with only a small decrease compared with the control condition (2.9 percent). Overall for the week, the monetary bonus condition resulted in a higher pay (the bonus) and a 6.5 percent drop in performance compared with no incentive at all.

One important lesson from our experiments at Intel is that different types of motivations don’t add up in a simple way. In particular, adding money to the equation can backfire and make people less driven.

Also important is that many people do not understand how the changes in bonus structure will impact their own performance. Most people feel the monetary reward would improve their performance, and a bigger reward would generate better work. People are not being dishonest but when they think about a task in advance they overfocus on the extrinsic motivators, such as payment and bonuses while in the midst of a task, people focus on the inherent joy of the task.

You also need to build a compensation scheme that does not make your employees feel replaceable. Ariely writes that “when organizations attempt to create their compensation schemes, the first mistake they often make… is to overemphasize the countable dimension. Following the principle of looking for your keys under the street lamp, managers are drawn to the subset of tasks that are easily measurable. As a consequence, they overemphasize those parts of the job and divert attention and effort away from the uncountable dimension. The second mistake managers often make is to treat the uncountable dimension as if it were easily countable.” If it is easily countable, then anyone can do it. It implies you are like a rat in a maze, but instead of working for a bit of food you are working for a salary.

Explain how effort impacts team

While money alone cannot motivate employees, and often can demotivate if not structured right, words can have a big impact on motivation. As I discussed earlier, people need to see meaning in their work. Thus, as a leader, it is your job to convey that meaning.

Someone might be bored or unmotivated but by discussing the importance of their work you can turn their attitude around. You need to explain how their work impacts the customer and impacts the company, why it makes a difference. Most importantly, I have found you need to show how it impacts their teammates, the colleagues they are closest to. Does their effort elevate the entire team in the eyes of the company, does it help get additional resources or responsibilities, does it take some of the stress away from their colleagues, etc. By showing how they are helping, even apparently boring tasks take on a new meaning and thus generate a new level of motivation.

Let them own it

As well as explaining how every member of the team is making a difference, you need to help them own their work, make them understand that they are building their output. In multiple studies, people place a higher value in things they create themselves. For example, people asked to create origami and then offered the chance to purchase their works always offered more for their own creations than others did for the creations. There are many other examples of people willing to pay more for something they built than something built by someone else.

This phenomenon can be conveyed to motivation in the workplace. If an employee creates a marketing plan they are more likely to believe in that plan than if they were handed one and asked to execute it. If they believe in the plan, they will have stronger motivation to implement it. The key takeaway is, when possible, have your team members build a plan how to best do their jobs rather than simply telling them what to do.

Trust your employees

The exchange of trust and goodwill is an important and inherent part of human motivation and needs to be part of your leadership strategy. The more your team feels you trust them, the more motivated they will be to contribute to the company.

Showing trust and goodwill permeates how you interact with employees. Ariely writes “it is relatively easy to create goodwill. All we need is an encouraging word here and there, a gift from time to time, and a sincere look in the eyes.” Other areas that you can show goodwill and trust are:

Do not micro manage. When you give an employee a job or goal, let them do it. Do not look over their shoulder every five minutes and critique how they go about their job.

Structure employment agreements to show trust. Do not try to cover every bad thing they can do, especially when you are not likely to enforce it. Build the relationship on mutual respect and a common goal.

Do not put in strict policies for common sense activities. You do not have to create Internet policies that list every site employees can and cannot visit. You do not have to list the exact expenses people will be reimbursed for. Explain the high level goals and your team will see you trust them and act appropriately.

Create a reasonable approval process. Trust your employees to approve small deals or purchases (or even large ones). It is not an issue of how time consuming the process is, it is the signal it sends that you do not trust your employee to make the decision themselves.

Ariely also points out that “goodwill is fragile. Supporting it is easy, but destroying it is even easier.” Thus, you need to build goodwill and make sure there are not activities that undermine your other efforts driven by other parts of your organizations (i.e. HR or legal).

Create a long-term relationship with your employee

Finally, Ariely points to another key in motivating yourself and people around you, ensure they are thinking of the long term. Ariely writes, “you won’t bother putting a lot of energy into a short-term relationship, whether with a romantic partner, employer, colleague, or apartment. But if you think of that relationship as a long-term investment, then you will be motivated to deposit more of your love, trust, energy, and time. This sense of investment is the basis of the marriage vow, and it is the basis of true dedication and loyalty in the workplace.”

In this day and age, it is easier said than done to make the employment relationship long-term. You do not, however, have to guarantee lifetime employment to build a long-term relationship. Reid Hoffman, co-founder of LinkedIn, wrote a great book a couple of years ago about how employment is now like tours of duty. While some criticized the book for suggesting that employment is transient, the key point is that the employee and employer both acknowledge it and create a plan that the tour of duty has meaning to both parties and leads to something better for both parties. Thus, although that specific job is transient there is still a long-term relationship for both sides. It shows that for all employees, even those on short-term contracts, if you build a long-term picture the employees will be better motivated.

There are other things you can do to build a sense of long-term commitment. You can invest in employees’ education, provide them with health benefits that clearly communicate a commitment to a joint healthy future, invest in their well-being both within and outside of work, invest in their personal growth, and provide them with a path for promotion and development within the company. The key is that you are both looking at the long-term, not just short term impact and results.

Motivation is multi-faceted so think it through

After reading Ariely’s book, I realize both how important motivation is to everything and how many different ways I can impact it (both positively and negatively). Being motivated myself, and having a motivated team, is incredibly powerful and thus worth the effort to implement many of the concepts Ariely suggests.

I am excited to announce that my book (with an assist from Wendy Beasley) on lifetime value, Understanding the Predictable, is now available on Amazon in both a Kindle and print edition. Understanding the Predictable is based on my blog posts about lifetime value with some case studies added to illustrate the various concepts and key takeaways (now a staple of my blog) for each section.

If you do read Understanding the Predictable, I would appreciate it if you posted an honest and open review on Amazon (good or bad) so others will see the plusses and minuses. I hope you enjoy.

Key takeaways

The mobile market is far from dead. The misperception that the opportunity has passed is driven by the selective memory of a better past than existed and the current focus on copying existing successful products.

The opportunity on mobile is still great, with projections of 5 billion smartphone users by 2019 and over 1 billion people on Facebook.

Rather than complain or try to create yet another slot or mid-core game, challenge yourself to think outside the box. Focus on creating uncontested market space and making the competition irrelevant.

Don’t give up, there are still great opportunities in mobile (aka make mobile great again)

I doubt a day goes by without someone whining and winging about how tough the games and mobile market is today and although it is difficult, there are still great opportunities.

Why many think the mobile market sucks

There are a few reasons people feel the market is so challenging. First, there is always a selective memory of how great things used to be. I was there when the mobile market was perceived as a gold rush. And for the first few iOS games, they did great. It was, however, always challenging. I remember at Playdom all of our failed efforts (and various heads of mobile) to penetrate this market. Playdom was not alone, as many companies (EA/Playfish, Zynga, Kabam, CrowdStar and innumerable others) lost tons of money (and users) in the mobile space. I call this the “Make Mobile Great Again” phenomenon, similar to the Americans who have a very nostalgic view of the country 20 or 30 years ago.

The second reason for the perception of the difficulty of mobile is the red ocean mentality of most of the complainers. I have written before about blue ocean versus red ocean strategy, with the latter a strategy to beat established competitors in a known market rather than expanding the market to appeal to non-users. Mobile now is incredibly difficult if you are pursuing a red ocean strategy. Players have invested months or years in existing products (Clash of Clans, Game of War, Slotomania, etc.) and getting them to switch does not mean putting out a product a little bit better but creating a game that is 9 times better ( see my blog post from 2014 on why a new product needs to be 9X better to get users to switch ).

Then add to the challenge of creating something 9X better that the competition is really good these days. Even the game companies out of favor have experienced and deep teams of game designers, product managers and engineers. They also have millions of dollars they are investing in their new games (in some cases sitting on billions in the bank) to make them better, get new users and reactivate lapsed players. They are not waiting for you to launch a new game and take away their chart position (and revenue).

The bottom line is the market is very challenging if you are just trying to compete with games already on the market (but it always sucked to compete in a red ocean). That does not mean, however, that the mobile market itself is no longer a great opportunity.

The next great platform is still mobile

A recent blog post from Greylock Partners by Josh Elman, a leading Silicon Valley VC, makes the point that The Next Great Platform is the One That We Already Have. In the world of venture capital, they also hear all the time that there are no longer opportunities in mobile (in their case, it is often that Facebook, Snapchat, Instagram, Twitter, etc. have consumed the entire market) and that they need to look at the next big thing (VR, AR, drones, IOT, insert hot new trend here).

Elman, like me, is not ready to give up on mobile. He pointed out that in 2002-2004, everyone was complaining that all of the opportunities on the Internet were over: Yahoo and AOL were the dominant portals, Google controlled search and Amazon owned eCommerce. Post 2004, however, we saw Friendster then LinkedIn, MySpace, YouTube and a small company named Facebook. So maybe the Internet was not exactly devoid of opportunity.

What is particularly interesting is that these companies (many of whom enjoy huge valuations), did not even need a technological inflection point to enter the market. Instead, they grasped the opportunity from user-generated content followed by a social and psychological shift. Even the new technologies were largely improvements on existing tech.

The opportunity now is tremendous. Billions and billions of people use Smartphones (5 billion by 2019). More than one billion people are active on Facebook and over 100 million use Instagram monthly, according to Facebook. And for those still not convinced there is still an opportunity, the chart below shows all the new apps (albeit not gaming) that rose to the top of the charts just this year.

Where the mobile opportunities are

If you are expecting me now to list some great opportunities, you have not read the rest of this post very carefully. The opportunities in mobile are not doing what everyone else is doing but understanding where you can create apps and games to reach people in a new way.

As Elman writes, “What happened in the Web 2.0 era was that some companies succeeded in creating totally new experiences, engaging consumers, and enabling them to connect with other people in a way that had never happened before online. Now that we’re in a fully mobile world, I think there is a lot of room to create new experiences and connect people. “

Rather than complain or try to create yet another slot or mid-core game, challenge yourself to think outside the box. Focus on creating uncontested market space and making the competition irrelevant. Then you can leverage the still great mobile platform.

Last night, the New England Patriots beat the Houston Texans 27-0 with Jacoby Brissett at quarterback. What is surprising to some is that Brissett is an unknown third-team rookier quarterback only playing because the star starting quarterback, Tom Brady, is suspended for four games and his back-up Jimmy Garoppolo was injured last week. What the victory so poignantly shows is that companies and teams succeed by building a good system and not letting inevitable hardships derail them.

Over two years ago, I wrote about the Next Man Up philosophy, how rather than dwelling on adversity just keep moving (not surprisingly, it was also about the Patriots). The core is that successful companies and teams focus on their goal and do not let short-term issues serve as a reason to fail.

No excuses

At its core, this philosophy is about staying focused on what you need to do to succeed, not why you might fail. It would have been easy for Patriots Coach Bill Belichick during the week to say they would “try their best” but without their top quarterbacks it will be difficult. Instead, Belichick’s message was his job is to beat the Texans, it has always been to beat the Texans and that is what he will prepare the team to do.

Companies and individuals often look for reasons why a project will not succeed or already has failed. I remember at E3 after 9/11, hearing from multiple game development companies that they ran into problems or their games did not succeed because of 9/11. The truth was they would not have succeeded regardless and most of these companies failed to ever succeed.

There will always be reasons that can rationalize why you are not successful: someone left the team, competitors are not pricing fairly, regulations have changed, blah blah blah. The reality is things never go as they are planned, there will always be unforeseen obstacles and hurdles. Good companies, good coaches and good leaders, however, do not care about the excuses and focus on the goal and how they will succeed given the circumstances. They do not make excuses when they fail, they learn from them (and avoid them).

Not rah-rah

What is also interesting in the Patriots success last night (and pretty much the last ten years) is that it was not at all driven by a great motivational speech. As well as not making excuses, Belichick did not extoll his team to play at 110% or do it for Brady. Instead, it was business as usual. We have a job to do, the variables have changed as they always do, but we will go out and do it. That is exactly what the Patriots did last night.

The press, and many people, love the charismatic, macho, inspirational leader. Rex Ryan (former New York Jet and current Buffalo Bill American Football coach) had a rabid following because he was so enthusiastic and his players loved him. Elon Musk has more fans than any businessman I have ever seen. Yet it is the Bill Belichek’s, Jeff Bezos’ and Bill Gates’ that deliver results year in and year out, and neither of them could be deemed charismatic. In fact, they are often successful because the team and the company are at the forefront, rather than their individual star.

It’s above the individual

Related to the coach not being the center of attention, the Patriots show that success is about not elevating any individual above the team or company. While the Patriots have had many great players, they have fostered a team first mentality. Even Tom Brady, New England’s injured starting quarterback who some consider the greatest quarterback of all time, celebrated on Facebook the Patriots win last night even though it theoretically could have impacted his greatness by showing the Patriots win with or without him.

This strategy also makes it easier to deal with an employee who leaves or a player that gets injured. Again, to use the Patriots example, they have now won all three games that Tom Brady has missed due to his suspension. By contrast, when the Indianapolis Colts (a traditional Super Bowl contender at that time) in 2011 lost quarterback Peyton Manning to an injury for the season, they ended up winning only two out of 16 games. In the business world, there is also almost always turnover. If you tie your success to one individual, you are much less flexible in your ability to deal with future situations.

It’s about the process

What it comes down to is building a good process to achieve your ultimate goal, whether that is hitting revenue targets or winning football matches. If you have a system that can weather external shocks you will achieve this goal rather than spending your team in a bar rationalizing why you failed and your competitors succeeded.

Key Takeaways

New England’s 27-0 victory over Houston Thursday night with a third string rookie quarterback exemplifies the concept of how a good system will help any team or company succeed regardless of the circumstances.

Good companies and teams succeed by not making excuses (either before or after the fact) but simply focusing on succeeding knowing that circumstances will sometimes be against them.

They also succeed by ensuring they build a system not centered on an individual but one that allows for success regardless of changes to the team.

I am a big fan of failure. I not only encourage my team and people around me to fail, I consider it a problem if they do not. It means we are not trying enough new things.

Even if we have a 90 percent chance of success with everything you try, if you try 30 or 40 initiatives 3-4 will fail. I argue that only trying things with a 90 percent chance of working is too conservative; you need to look at the expected return and try any that have a positive expected value, even if they have less than a 50 percent chance (if the upside is high enough). The key is if you are not taking risks, you are not doing enough to increase value.

The authors point out that while most companies acknowledge and support the need to fail occasionally, management processes actually work against this goal. Most budgeting, resource allocation and risk control systems are built on predictability and optimizing efficiency, giving bonuses and promotions to those executives “in control.” Thus, even if you are encouraged to fail, you are incentivized to do everything possible to avoid it. The solution is to extract value from failure so you an increase your return on it, boosting benefits while controlling costs. There are three steps to raise your return from failure.

Learn from every failure

The first step to generating additional value from failure is getting people to reflect on projects and initiatives that had disappointing results. While it sounds obvious, it often does not occur. Most people find reviewing failures quite painful and would prefer to invest their time in looking forward.

A failure provides the chance to revisit your core beliefs and adjust them where needed. The authors recommend asking the following questions to understand the benefits and costs of the failed initiative or project:

What have we learned about our customers’ needs and preferences and our current markets? Should we change any of our assumptions?

What insights have we gained into future trends? How shold we adjust our forecasts?

What have we discovered about the way we work together? How effective are our organizational processes, structure and culture?

How did we grow our skills individually and as a team? Did the project increase trust and goodwill? Were any developmental needs highlighted?

What were the direct costs – for materials, labor, art and production or software development?

What were the external costs? Did we hurt our reputation in the market or with customers, or weaken our competitive position?

What were the internal costs? Did the project damage team morale or consume too much attention? Was there any organizational fallout?

What are the key insights and takeaways for the business?

These questions will help you think of everything that you and your company have learned, how it might help you move forward and all the positive side effects from the experience.

Share the lessons

The big benefit from failures is spreading the lessons across the company. You can amplify the paybacks from failures by passing between business areas the information, ideas and opportunities for improvement gained from the above analysis.

Shared learnings also increases the proclivity to pursue future initiatives. By reflecting on the positives, you build trust and goodwill and clear the path for others to take action on risky initiatives.

Review your pattern of failure

The final step to gaining value from failure is “to take a bird’s-eye view of the organization and ask whether your overall approach to failure is working.” Do you have a process to learn from every failure? Are these lessons shared? Are you using these lessons to improve both your strategy and execution?

This analysis will help you see if you are failing too much (and unnecessarily), not enough (and thus not taking enough risks) or at the appropriate level. If you are failing too often, you probably need to make the green light process for initiatives more rigorous. If not enough, you need to generate and evaluate more initiatives.

The benefit

Failure is critical to generating the most possible value. By rigorously learning from failures, you increase their return and the ability to pursue future initiatives.

Key takeaways

You need to encourage failure. Without failure, you are not pursuing enough initiatives to grow.

To get the most from failures, and subsequently prompt people to launch initiatives that can fail, you must study failures carefully and learn about the market, customers and organization.

You also need to circulate this information through your organization.

Get my book on LTV

Understanding the Predictable delves into the world of Customer Lifetime Value (LTV), a metric that shows how much each customer is worth to your business. By understanding this metric, you can predict how changes to your product will impact the value of each customer. You will also learn how to apply this simple yet powerful method of predictive analytics to optimize your marketing and user acquisition.

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Lloyd Melnick

This is Lloyd Melnick’s personal blog. I am EVP Casino at VGW, where I lead the Chumba Casino team. I am a serial builder of businesses (senior leadership on three exits worth over $700 million), successful in big (Disney, Stars Group, Zynga) and small companies (Merscom, Spooky Cool Labs) with over 20 years experience in the gaming and casino space.